Burford Capital Limited (“Burford”), a litigation funder, is listed on the London Alternative Investment Market (“AIM”) (a wholly owned subsidiary of the London Stock Exchange) (the “Stock Exchange”).
On 6-7 August 2019, Burford’s share price fell dramatically (it closed on 7 August 56.5% lower than it had been at 1.30pm the previous day), due to a legal short-selling attack by a US investment advisory business, Muddy Waters. Burford contended that this visible activity by Muddy Waters implicated it in an alleged conspiracy unlawfully to manipulate the market. However, as trading on AIM is anonymous, Burford was unable to identify the persons it believed to be part of the conspiracy from the anonymised trading data it possessed. Following these events, the Stock Exchange and Financial Conduct Authority (the “FCA”, the relevant regulator) had independently analysed the trading in this period and each independently found that there was no evidence of unlawful market manipulation. In order to obtain information to support its position, Burford sought a Norwich Pharmacal order (“NPO”) requiring the Stock Exchange to disclose information about the trades in its securities over the relevant period, including the identities of those persons trading.
Norwich Pharmacal orders: the test
NPOs, if granted by the court, require the recipient to disclose specified information to the applicant. They have typically been used in circumstances where the applicant knows that a wrong has been committed against it, does not know the identity of the wrongdoer, but can identify a third party who has that information or other relevant information necessary to pursue a remedy. They can be used to obtain information from the third party to enable a claimant to plead its case against the wrongdoer (although there does not need to be an intention to commence proceedings against the wrongdoer for the order to be granted) or to help trace assets.
For a NPO to be granted, it is necessary that the “defendant [i.e. the Stock Exchange in this case] must have been mixed up in so as to have facilitated that which the Norwich Pharmacal claimant alleges to have been wrongdoing against him” and “thereafter, a single question [arises] for the court, assessing and balancing all of the factors that bear upon it in any particular case, namely whether justice requires that the defendant provide the assistance that the relief sought would compel him to provide, to further the end of righting a facilitated wrong” (at para. 42).
What justification did Burford give for seeking a NPO?
In this case, the justification given by Burford for seeking the information sought was that it was needed for the purpose of “seeking relief against any person or entity arising out of or in relation to each Share Order Event or the Order Event Data, whether by means of civil litigation, criminal proceedings, regulatory action or otherwise”.
The foundation of Burford’s allegations of wrongdoing was market manipulation under art. 15 of the EU Market Abuse Regulation (Reg. No. 596/2014). Burford relied on analysis by an expert of anonymised trade data provided to it by the Stock Exchange. The court found that the expert analysis did not provide any real support for the conclusion that there had been market manipulation and was speculative because the anonymised data did not give a full picture of the trades (and the motivation behind them) over the relevant period. The court found that, on the evidence, there was no good arguable case that unlawful conduct had occurred. The application, therefore, was dismissed as the strict pre-requisite for a NPO was not met.
However, the judge went on to consider the position had this initial pre-requisite been met. Based on existing case-law, the factors the judge considered would need to be balanced were: (i) the strength of the case that there had been wrongdoing; (ii) the strong public interest in allowing a claimant to vindicate his legal rights; (iii) the potential deterrent effect if the order is granted; (iv) whether the information could be obtained from another source; (v) whether the defendant knew or should have known he was facilitating possible wrongdoing; (vi) the impact on innocent parties if the order sought revealed their names; (vii) confidentiality; (viii) privacy rights under human rights and data protection laws; and (ix) public interest in maintaining confidentiality of journalistic sources.
Given the specific facts of the case, the judge also considered that the following factors would need to be weighed up: (i) the extent to which the order would cut across or is not required because of a regulatory regime for investigating and taking action in relation to suspected market manipulation; and (ii) the possible impact on the UK as an equity trading venue.
Key points for private prosecutions
Because the pre-requisite had not been met, the judge expressly decided he did not have to rule on whether NPOs could be used in the context of private prosecutions where there is no separate civil cause of action, but for the purpose of his analysis, he assumed they could. However, based on the cases relied on to support the proposition that NPOs could be used for that purpose, the judge was sceptical. While the judge did not entirely close the door on the suggestion, he stressed that in the context of criminal offences, the victim would likely pass the information to the police (or relevant authority) to investigate and prosecute. The police (or relevant authority) have their own powers to obtain information for the purposes of their investigation. If the police (or relevant authority) failed properly to investigate or prosecute, the victim could raise a complaint and/or use public law remedies (judicial review of the decision not to prosecute, for example). The judge considered it would be an “unacceptable use” of a Norwich Pharmacal application for the victim to pursue a complaint that the alleged crime had not been properly dealt with (because of the available public law remedies) and if that was not the basis for seeking the application (i.e. there was no complaint about how the police had investigated and the remedy was sought after a decision had been made not to prosecute for the purposes of pursuing a private prosecution), it would be difficult to see circumstances in which a private prosecution would simply not be taken over by the Director of Public Prosecutions and stopped. These comments make it very difficult to envisage circumstances in which NPOs could practically be obtained for the purpose of private prosecutions, even if theoretically possible.
On the facts of this particular case, the judge also noted that there could be no private prosecution for MAR offences, as the FCA had the exclusive statutory function to investigate and decide whether to prosecute market manipulation. Although Burford suggested it may still pursue a private prosecution under the Fraud Act 2006, the judge said there could be no Fraud Act offences here unless there was also a specific market abuse offence under MAR and there would be a “very real question” as to whether a private prosecution could run on this basis. The fact that the FCA had reviewed the trades on the relevant dates and concluded there was no evidence of market manipulation was key to the analysis. The judge considered that Burford could challenge that decision via judicial review, which could enable Burford to obtain disclosure of the information sought as part of that process. The judge noted: “Justice does not demand that the Stock Exchange give up the confidential information demanded when, on the facts of this case, judicial review provides fair and sufficient protection of Burford’s interests as alleged victim of market manipulation with no private law cause of action against the manipulators.” (at para. 180)
Previous cases have considered the use of NPOs in private prosecutions. In particular, in FCFM Group Ltd v Hargreaves Lansdown Asset Management Ltd  EWHC 3075 (QB), the claimant’s application for a NPO to obtain information about a married couple’s trading history in a potential private prosecution for insider trading was dismissed on the basis that it was not necessary in the circumstances of the case. The court did not rule on whether NPOs were available where the only potential remedy sought was a private prosecution. Instead, the decision was primarily made because a civil claim based on the same facts was already live and disclosure in that process would provide the claimant with relevant information. Further, the CPS had been informed of the matter and the court considered it would be best placed to determine if a prosecution could proceed.
The Burford judgment further reinforces this position and could have the effect of limiting the (already limited) circumstances in which private prosecutions may be brought as it may reduce the already limited tools available to the private prosecutor to gather evidence from third parties. While the judge did not entirely rule out the possibility of NPOs being granted for the purposes of pursuing private prosecutions, the mood music of the judgment was not positive. The case suggests that where an enforcement body (be it the police or regulatory authority) are aware of the alleged wrongdoing, investigated and have declined to prosecute (the very circumstances in which private prosecutions are often considered), a NPO will unlikely be granted to enable the gathering of key evidence, in the absence of any civil cause of action being available. Since private prosecutors lack the statutory powers of law enforcement bodies to compel production of potentially relevant evidence, private prosecutions are unlikely to get off the ground unless the victim has access to much of the evidence required to bring the prosecution in the first place (or has the benefit of assistance from law enforcement bodies who have otherwise declined to take the matter forward themselves).